This book brings together recent IMF research on how the Middle East and North African countries are grappling with various macroeconomic challenges. It rigorously analyzes policy alternatives for a range of relevant topics, including the implications of changing demographic trends for growth and unemployment, determinants of inflation, financial-sector reform and Islamic banking, fiscal sustainability in oil-dependent economies, exchange rate and trade arrangements, and impediments to foreign direct investment. The book's overall theme-self-sustaining and faster growth can be achieved through comprehensive structural reforms and closer collaboration between the region's policymakers and the international community.

– between years and months (e.g., 1995–96 or January–June) to indicate the years or months covered, including the beginning and ending years or months; and

/ between years (e.g., 1996/97) to indicate a fiscal (financial) year.

“Billion” means a thousand million.

Dollars are U.S. dollars.

Minor discrepancies between constituent figures and totals are due to rounding.

Preface

The Middle Eastern and North African economies are presently at a crucial juncture in their reform process. During the past several years, a number of these economies have implemented bold steps to address internal and external disequilibria. Demand management has been strengthened in most countries, and progress has been made to rationalize the domestic price structure, ease restrictions on private domestic and foreign investment, and liberalize exchange and trade regimes. In the event, inflation has been contained and external imbalances reduced. However, growth has remained stubbornly weak, while population has continued to grow briskly. In many countries, this phenomenon has worsened already high levels of unemployment and poverty.

The challenge ahead is to accelerate growth in a sustained fashion while avoiding the reemergence of macroeconomic imbalances. There is a strong awareness in the region for a concerted and comprehensive action plan, which can build upon the significant steps that have already been taken to address this challenge. First, it is recognized that fundamental structural reforms are needed to restore market-based prices and institutions, which could encourage private-sector investment, including foreign direct investment. Second, the governments in the region are aware of the critical importance of maintaining macroeconomic stability, so that market forces can efficiently allocate resources. Third, benefits from these steps will crucially depend upon the ability and willingness of countries in the region to become integrated into the global economy through exchange and trade liberalization.

However, these steps will have to be matched by the opening of advanced-country markets to the exports of the region’s countries. In this context, it is gratifying to note the progress that has been made under the European Union’s Association Agreements with a number of Middle Eastern and North African countries. At the same time, regional cooperation and integration will be helpful in increasing the competitiveness of these economies. Finally, countries will have to invest in human capital so as to benefit from and participate in the global technological revolution. But benefits from these initiatives will presuppose stronger and sounder governance, associated with transparency of policies, adherence to the rule of law, and secure private property rights. It should be recognized that liberalization and globalization will not only provide opportunities and improvement, but will also inevitably involve dislocations associated with the rise and fall of different economic activities. Effective social spending and social safety nets will therefore be necessary to cope with the process of change.

The International Monetary Fund has been deeply involved with the regional country authorities to support the reform process through policy advice, the use of Fund resources, and technical assistance, and will remain engaged in the period ahead. Indeed, the Fund’s staff has continued to undertake research on the evolving economic conditions of these countries, which has helped in pinpointing policy issues and solutions. This volume brings together a number of such papers prepared recently by the Fund’s staff. In particular, these papers address the implications of changing demographic trends for growth and unemployment, determinants of inflation, the role of financial-sector reform and the development of Islamic banking, fiscal sustainability in oil-dependent economies, the role of appropriate exchange rate and trade policies, and impediments to foreign direct investment.

This book concludes that accelerating growth and reducing poverty in a sustained fashion requires concerted effort. It can best be achieved by embracing the global economy, improving policies, and strengthening institutions. This will be a challenging task, but one that can be accomplished through closer collaboration between policymakers in the Middle East and North Africa and the international community. As always, the Fund stands ready to be of assistance in this endeavor.

Horst Köhler

Managing Director

International Monetary Fund

Acknowledgments

I am grateful to the following people at the IMF for their advice and support: Paul Chabrier, Director, Middle Eastern Department; Pierre Dhonte and David Burton, Deputy Directors, Middle Eastern Department; and Karim Nashashibi, Senior Advisor, Middle Eastern Department. Thanks are also due to Alfred F. Imhoff for providing editorial help; to Sean M. Culhane of the External Relations Department, IMF, for editorial guidance; to Behrouz Guerami of the Middle Eastern Department for research assistance; and to Anne-Barbara Hyde and Debra Loucks of the Middle Eastern Department for assistance in preparing the manuscript.

Zubair Iqbal

You are not logged in and do not have access to this content. Please login or, to subscribe to IMF eLibrary, please click here